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Has the Market Priced in Peak Hawkishness?

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What’s in Today’s Report:

  • Has the Market Already Priced in Peak Hawkishness?
  • Weekly Market Preview:  Why This is the Most Important Week of Q1
  • Weekly Economic Cheat Sheet:  Fed on Wed, Jobs on Friday (It’s a busy week!)

Futures are moderately lower following a hotter-than-expected Spanish CPI report and as markets look ahead to a week filled with potential market-moving events.

Spanish CPI rose 5.8% vs. (E) 4.8% y/y and that is challenging the idea that disinflation is accelerating, and stocks are dropping as a result.

Investors are also booking profits ahead of a key week of catalysts including Fed/ECB/BOE rate meetings, critical earnings reports (this is the most important week of earnings), and the monthly jobs report on Friday.

This week is very, very busy from an economic standpoint between the Fed on Wednesday, jobs report on Friday, ISM PMIs and key inflation readings.  But, all the important reports start tomorrow so today’s focus will be on the earnings, and some notable reports today include NXPI ($3.60) and WHR ($3.43) which will give us insight into semi-conductor production (any more shortages?) and consumer demand.

Did Yesterday’s Data Imply a Soft Landing is More Likely?

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What’s in Today’s Report:

  • Did Yesterday’s Data Imply a Soft Landing is More Likely?

Futures are slightly lower as markets digest Thursday’s rally following a mostly disappointing night of earnings.

Intel (INTC) posted very disappointing results and the stock dropped –9% overnight while other earnings reports were mostly mixed.

Economic data was sparse as Euro Zone Money supply was the only notable indicator and it rose 4.7% vs. (E) 4.8%.

Today focus will turn to inflation via the Core PCE Price Index (E: 0.3%, 4.4%) and five-year inflation expectations in U-Michigan Consumer Sentiment (E: 64.6).  The lower those inflation numbers, the better, and if we get soft inflation data that likely will help extend this week’s rally as it’ll increase expectations for a Fed pause in the next month or two.  We also get Pending Home Sales (E: -1.0%) but that shouldn’t move markets.

On the earnings front, important reports today include: CVX ($4.16), AXP ($2.18), and CL ($0.76).

Tom Essaye Quoted in MarketWatch on January 24th, 2023

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Tech rally is ‘biggest game of chicken between the Fed and the market I’ve ever seen’: analyst

“We are now witnessing the biggest game of ‘Chicken’ between the Fed (who says rates are going to above 5%) and the market (who thinks the Fed cuts rates at least twice this year) that I’ve ever seen,” said Tom Essaye, founder of Sevens Report Research, in a Tuesday newsletter. Click here to read the full article.

Economic Breaker Panel: January Update

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What’s in Today’s Report:

  • Economic Breaker Panel – January Update
  • January Composite PMI Data Takeaways

U.S. stock futures are lower this morning, led by mega-cap tech after MSFT earnings topped estimates but guidance disappointed which is weighing on sentiment broadly.

Economically, the Business Expectations component of the German Ifo Survey notably firmed to 86.4 vs. (E) 85.0 further supporting hopes that Europe will avoid a recession in 2023 but concerns about the global tech sector is offsetting the good economic data this morning.

There are no notable economic reports and no Fed officials are scheduled to speak today which will leave the focus on earnings.

Notable companies releasing quarterly results today include: BA ($0.30), T ($0.58), and FCX ($0.40) ahead of the bell, and TSLA ($1.15), IBM ($3.60), CSX ($0.47), and STX ($0.08) after the close.

Intraday, the Treasury will hold a 5-Yr Note auction at 1:00 p.m. ET, and as we saw with yesterday’s 2-Yr auction which sent stocks to new session highs, the outcome of the auction could move markets before focus returns to post-market earnings reports.

Why Is Tech/Growth Rallying So Hard?

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What’s in Today’s Report:

  • Why Is Tech/Growth Rallying So Hard?
  • Leading Indicators – Data Takeaways
  • Chart: Dollar Index Approaches Key Long-Term Technical Support

Futures are slightly lower as yesterday’s gains are digested while focus shifts to the start of big tech earnings.

Economically, Flash PMI data was mixed overnight with the broader Eurozone figure topping estimates but the U.K. headline badly missing expectations. The Solid Eurozone data is helping shore up recently more hawkish policy expectations for the ECB and that is weighing on EU shares this morning.

Today, the U.S. Composite PMI Flash will be in focus right after the opening bell. The report is comprised of two parts: the PMI Manufacturing Flash (E: 46.5) and the PMI Services Flash (E: 45.5) and investors will want to see some degree of stabilization in the data.

There are no Fed speakers today however the Treasury will hold a 2-Yr Note auction at 1:00 p.m. ET and the results could shed light on the market’s latest policy expectations ahead of next week’s Fed meeting, and weak demand (higher yields out of the auction) could weigh on stocks.

Finally, earnings season is continuing to pick up with: JNJ ($2.22), VZ ($1.21), MMM ($2.34), UNP ($2.75), and TRV ($3.50) reporting before the bell while the big report will be MSFT  ($2.29) after the bell. COF ($3.81) will also report after the close.

Hard Landing or Soft Landing?

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What’s in Today’s Report:

  • Hard Landing or Soft Landing?
  • Weekly Economic Cheat Sheet:  Does Growth Stabilize?
  • Weekly Market Preview:  The Peak of Earnings Season

Futures are little changed following a mostly quiet weekend of news as markets look ahead to more earnings and economic data this week.

On Sunday the WSJ published an article on the Fed that stated the Fed will hike 25 bps at the upcoming meeting and begin discussions on when to end the rate hike cycle.  The article is being taken as dovish, but it’s not very different from current consensus thinking.

Today the focus will be on Leading Indicators (E: -0.7%) because this number flashed an intense recession warning signal last month and if there’s further deterioration that will likely weigh on stocks modestly.

On the earnings front, most of the key names this week report Tuesday – Thursday, but some results we’re watching today include:  SYF ($1.12), BKR ($0.41), and LOGI ($1.06).

Is Tech Still An Anchor on the S&P 500?

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What’s in Today’s Report:

  • Is Tech Still An Anchor on the S&P 500?

Futures are slightly higher following a better night of earnings and more encouraging inflation data.

Earnings from NFLX and PPG were solid after yesterday’s close and that’s helping to slightly bolster sentiment.

On inflation, Japanese CPI was slightly better than estimates (4.0% y/y vs. (E) 4.1%) and that will help to reduce hawkish expectations for the BOJ.

Today there’s just one economic report, Existing Home Sales (E: 3.97 million) and that shouldn’t move markets.  So, focus will be on Fed speak and we get two speakers today: Harker (9:00 a.m. ET) and Waller (1:00 p.m. ET).  If they reiterate the desire for Fed Funds to get above 5%, despite the recent progress on inflation, that will be a mild headwind on stocks.

On earnings, two notable results to watch today are ALLY ($0.98) and STT ($2.00).

Technical Market Update

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What’s in Today’s Report:

  • Technical Market Update
  • Why are Small Caps Outperforming?
  • How Bad Was Economic Data Yesterday? (Answer:  Bad)

Futures are extending Wednesday’s losses following more disappointing earnings and as worries about the economy grow.

Alcoa (AA), Allstate (ALL), and Discovery Financial (DFS) posted soft earnings or negative guidance overnight.

Today we get several important economic reports including, in order of importance: Philly Fed (E: -10.3), Jobless Claims (E: 215K), and Housing Starts (E: 1.362M).

There are also several Fed speakers and the most important one is Brainard (1:15 p.m. ET) and if she’s slightly dovish, that will help markets stabilize.  Collins (9:00 a.m. ET) and Williams (6:35 p.m. ET) also speak today.

Finally on the earnings front, we get more important results today and the market needs some good news.  Reports we’re watching include:  PG ($1.58), FAST ($0.42), NFLX ($0.45), and PPG ($1.15).

Tom Essaye Quoted in Blockworks on January 12th, 2023

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Crypto Miners Log Double-digit Stock Price Gains After CPI Report

Tom Essaye, the founder of Sevens Report Research, said Wednesday before the CPI print that inflation metrics would need to continue falling quickly if the market hopes to sustain a broader rally. Click here to read the full article.

Tom Essaye Quoted in Blockworks on January 12th, 2023

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‘They’re Definitely Still Hiking’: Inflation Cooling May Not Deter Fed

A drop in gasoline prices was the largest contributor to the core inflation dip, something that Tom Essaye, president of Sevens Report Research, told Blockworks is “a little bit more disappointing than the headline would imply.” Click here to read the full article.